DFS expansion could be costly

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Sir Graham Kirkham has good reason to be cheerful, with the relentless rise of DFS Furniture continuing. There were none of the industry's traditional whinges about the weather yesterday, or the absence of a feelgood factor, just a steady trend of rising profits.

The latest period (the six months to January) saw profits up 16 per cent to pounds 15m on sales up 19 per cent to pounds 87.7m. Excluding contributions from new openings, like-for-like sales were up by a healthy 8.6 per cent and by a similar, though unspecified figure, in the 12 weeks since.

With 34 stores and a further four to open between now and the end of July, DFS is tackling London and the South-east. Though this is a huge market, the expansion could prove costly until DFS can develop a cluster of South-east stores and reap economies of scale. Margins fell from 16.7 per cent to 16.1 per cent over the year and could slip further as a result.

Anyone who bought DFS shares when the company floated at 260p in 1993 has had a good run for their money, particularly in the past 12 months. They fell 3p yesterday to 510p and with analysts forecasting profits of pounds 30.7m this year, the shares are on a demanding rating of 26 times earnings.

That is asking a lot, even with the prospect of further special dividends, following last November's pounds 10m payout. Take profits.